Morgan Stanley 2014 Annual Report Download - page 118

(1) The standards applicable in 2013 included U.S. Basel I as supplemented by Basel 2.5.
(2) The aggregate balance of net after-tax debt valuation adjustment includes an approximate $69 million reconciling adjustment related to a
prior period.
(3) For purposes of calculating capital ratios under the Advanced Approach, the allowance for loan losses cannot be included in Tier 2
capital. Instead, an Advanced Approach banking organization may include in Tier 2 capital any eligible credit reserves that exceed its
total expected credit losses to the extent that the excess reserve amount does not exceed 0.6% of its Advanced Approach credit risk
RWAs. The allowance for loan losses may continue to be included in Tier 2 capital for purposes of calculating capital ratios under U.S.
Basel I and Basel 2.5 and under the Standardized Approach, up to 1.25% of credit risk RWAs.
The following table presents the Company’s RWAs and regulatory capital ratios at December 31, 2014 and
December 31, 2013:
At December 31, 2014 At December 31, 2013
U.S. Basel III
Transitional/
Advanced Approach U.S. Basel I(1)
(dollars in millions)
RWAs:
Credit risk ................................................ $184,645 $256,606
Market risk ............................................... 121,363 133,760
Operational risk ............................................ 150,000 N/A
Total RWAs .............................................. $456,008 $390,366
Capital ratios:
Common Equity Tier 1 ratio/Tier 1 common capital ratio ........... 12.6% 12.8%
Tier 1 capital ratio .......................................... 14.1% 15.6%
Total capital ratio .......................................... 16.4% 16.9%
Tier 1 leverage ratio ........................................ 7.9% 7.6%
Adjusted average assets ...................................... $810,524 $805,838
N/A—Not Applicable.
(1) The standards applicable in 2013 included U.S. Basel I as supplemented by Basel 2.5. The Company’s Total capital, Tier 1 capital, Tier 1
common capital and Tier 1 leverage ratios and RWAs at December 31, 2013 were calculated under this framework.
The following table presents the Company’s pro forma estimates under the fully phased-in Advanced Approach
and the fully phased-in U.S. Basel III Standardized Approach at December 31, 2014:
At December 31, 2014
Fully Phased-In Basis Pro Forma Estimates
U.S. Basel III
Advanced Approach
U.S. Basel III
Standardized Approach
(dollars in millions)
Common Equity Tier 1 capital ................................ $ 49,433 $ 49,433
RWAs ................................................... 463,099 454,968
Common Equity Tier 1 capital ratio ............................ 10.7% 10.9%
These fully phased-in basis pro forma estimates are based on the Company’s current understanding of U.S. Basel
III and other factors, which may be subject to change as the Company receives additional clarification and
implementation guidance from the Federal Reserve relating to U.S. Basel III and as the interpretation of the
regulation evolves over time. The fully phased-in basis pro forma Common Equity Tier 1 capital, RWAs and
Common Equity Tier 1 risked-based capital ratio estimates are non-GAAP financial measures that the Company
considers to be useful measures for evaluating compliance with new regulatory capital requirements that were
not yet effective at December 31, 2014. These preliminary estimates are subject to risks and uncertainties that
may cause actual results to differ materially and should not be taken as a projection of what the Company’s
capital ratios, RWAs, earnings or other results will actually be at future dates. For a discussion of risks and
uncertainties that may affect the future results of the Company, see “Risk Factors” in Part I, Item 1A.
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